Segmenting markets - Essay Example

Extract of sample Segmenting markets

Factor Analysis is a statistical tool that helps in understanding variables, or factors among the correlated and observed variables. It is mostly used to determine the variations in a larger number of groups by identifying the small number of factors within the large number of a particular group The first step is to select a method for factor analysis. There are two methods while conducting a factor analysis which are known as exploratory factor analysis and confirmatory factor analysis. Exploratory factor analysis is a technique for factor analysis which is often used for a larger set of variable. If the goal of a researcher is to identify the relationship with the measured variable then he should opt for the exploratory factor analysis. This method would help a researcher if no prior assumption or theory is made on the relation of the factors. However, in confirmatory factor analysis the variables are determined with the relation of prior assumptions or theory which aims to see if it meets the expectation as it was predicted. This method is selected when a social research is conducted. The simplification of a factor analysis is often interpreted by a method known as rotation which makes the output more understandable for the researcher. Rotation is the next step involved in factor analysis. The pattern of loadings in rotation works differently on each variable, the loading of each variable that has extracted factors are maximized while it minimizes the loading for other factors. There are five methods of rotation in which varimax, equamax and quartimax are orthogonal rotations whereas promax and direct oblimin are oblique rotations. The rotation of a particular variable mostly depends on a person if he thinks that the factors that are underlined should be related or not. If factors are considered to be independent then the author suggests that a person should use orthogonal rotation methods whereas if factors have chances to correlate then it is required to adopt direct oblimin which is an oblique rotation (Gorsuch, 1983). Labeling a factor is the next step which is an art of segmentation in which a factor is named which best describes the particular factor. The most common and appropriate technique is to name the highly ranked or the top one or two factors on the list. It is labeled on the basis of its characteristics, for example factor one can be labeled as price conscious whereas factor two can be labeled as quality conscious (Rummel, 1970). In the final step, interpretation is been made to assess the validity of factors outlines previously. In this step, four types of validity methods are used namely, content validity, concurrent validity, predictive validity, and construct validity. Content validity intends to measure the intended or the desired area which is associated with the theme of the research. Construct validity intends to assess the factors which involve the testing of hypothesis to which the researcher was trying to measure. Concurrent validity is the method in which scores are correlated with some other variables and then it is justified. In predictive validity method, a test is used to determine or justifying the theoretical outcomes which were expected. These steps are used for the purpose of finding a correlation between variables (Gorsuch, 1983). 2. Cluster Analysis: Cluster analysis is a statistical technique which helps in assorting of ‘mountain’ of information into neat files by forming a cluster or a group in which variables are similar to one another. It helps in creating subgroups which becomes more manageable than previously dealing with the individual variable. Similar to factor analysis, it is used to determine the relationship of variables between other variables. The first step involved in cluster analysis is the assigning of similar variables to their respective
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Summary

Factor Analysis is a statistical tool that helps in understanding variables, or factors among the correlated and observed variables. It is mostly used to determine the variations in a larger number of groups by identifying the small number of factors within the large number of a particular group …

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3 pages (750 words)Essay

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